Joel Beck

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Copyright 2007-2014

The original works appearing on this page are the intellectual property of Joel Beck and The Beck Law Firm, LLC. Copyright 2007-2014.

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October 2014

October 21, 2014

Prior to May 11, 2011, the law in Georgia tended to favor former employees of a business when a dispute arose about the enforceability of restrictive covenants such as covenants not to compete, covenants for non-solicitation, etc. If one of the agreements subject to strict scrutiny by the courts was unreasonable, then the entire agreement was void, and the courts could not modify the agreements to make them lawful.

Later, a constitutional amendment in Georgia backed by business interests was passed, which became effective in May 2011. Now, under the Georgia Restrictive Covenants Act, restrictive covenants entered into after the effective date of the new law can be "blue-penciled" by the court to modify the agreement into something lawful and enforceable, if it is found that the original agreement is problematic under the law. The end result is that the court will look to enforce, as close as possible, the original intent of the agreement.

Older agreements that are unreasonable continue to be more problematic for employers. A case in point this month from the Georgia Court of Appeals demonstrates the predicament. In Vulcan Steel Structures, Inc. et. al. v. McCarty et. al., (Georgia Court of Appeals, A14A0803, October 6, 2014), the court affirmed the trial court's findings that the restrictive covenants were unenforceable. In that case, the employer had an employee (McCarty) sign a non-solicitation covenant that was to last for two years following the termination of the employment. The agreement prohibited McCarty from conducting business with former clients of the employer, even when such business was not solicited. The court stated, "We hold that the non-solicitation of customers covenant in the agreement is unenforceable because it prohibits McCarty from accepting business from unsolicited clients."

Had the employer re-executed the agreement following the effective date of the new act, the court could have blue-penciled the agreement if needed to bring it into compliance with Georgia law. But, because this agreement fell under the older law, the court could not modify it, and found that the agreement was simply not enforceable.

The calendar matters in cases involving restrictive covenants. If you want your covenants to be enforced - or at least have a greater chance of being enforced - then you may wish to have employees execute new agreements that are dated following the effective date of the new law. Before doing so, be sure to check with your company's lawyer to ensure that the agreement is drafted well and is proper. And, if you are an employee faced with signing an agreement, you should understand that restrictive covenants can be enforced in Georgia, and that violative language can be modified as appropriate by the courts to help enforce the agreement. As such, be sure that you fully understand any restrictive covenant before you sign it, and consult with a lawyer if needed.

October 15, 2014

I didn't notice it, but when I hit the publish button on the post immediately before this one today, I published the 500th post here on BDLawBlog.com. 500 posts in a little over seven years. I doubt that most of you have read all 500, and that's OK. But thanks to my clients, friends and readers for your support in this blogging effort. I hope that you've found something worthwhile here over the years.

I think the next 500 will come faster than the first. We'll see. Remember, if you've got ideas for the blog, have some questions you might want answered, or any broker-dealer or RIA news, business law or estate planning topics that you think we need to know about or address, let me know. You can send an email to info @ thebeckfirm . com (no spaces) and let us know.

Thanks again for strolling through the pages here from time to time. Come back for the next 500 posts too!

FINRA recently issued Regulatory Notice 14-40, cautioning broker-dealer firms (and associated persons) against including overly restrictive confidentiality language in both settlement agreements and in arbitration discovery stipulations. FINRA asserts that overly broad confidentiality agreements can be treated as a violation of Conduct Rule 2010 and can result in enforcement action by the regulator.

It has long been a policy of FINRA (back to the NASD days) that firms could not prohibit a customer from cooperating with the regulators and discussing information about the matter, and guidance had been issued to that effect. In this notice, FINRA modifies its guidance somewhat to specifically state that a firm (or associated person) cannot prohibit another person from initiating contact with the regulator, or with the SEC. Previous guidance focused on language that would specifically allow the customer to respond to regulatory requests for information. Further, FINRA asserts that discovery stipulations in arbitration cases cannot require a person to keep documents received in discovery confidential and therefore not be allowed to share them with the regulator.

Firms and their counsel should review both their current settlement practices, including language in their settlement agreements, as well as any standard discovery stipulations and modify them as necessary in light of this guidance. While the regulatory notice itself is not a formal rule, it demonstrates the regulator's mindset and policy positions and shows how they can be expected to attempt to enforce Rule 2010 in the future. Forewarned is forearmed.

October 08, 2014

In a report and press release issued this week, the Public Investors Arbitration Bar Association (PIABA) issued a report asserting that FINRA's arbitration panel pool lacks diversity and also took issue with the "almost total lack of transparency in how the FINRA arbitrators are recruited and what disclosures they make" according to the report. In the report, PIABA asserts that the arbitrator pool is about 80 percent make, that the average age of arbitrators is 69 years old with 40 percent of the pool aged 70 or older and 17 percent aged 80 or older.

In connection with the report, PIABA has made several recommendations for reforming the arbitration process, including calling for securities arbitration to be optional for investors, thereby giving them the option to proceed with disputes in arbitration or to seek to resolve their cases in court. Additionally, PIABA called on the SEC to take steps to seek to improve the transparency of the arbitration forum, to examiner arbitrator recruiting practices and to evaluate whether minimum standards for arbitrators equates to the highest quality of arbitrators or whether other criteria should be used.

October 06, 2014

In this short video, I'll share with you my review of FINRA's report of disciplinary actions for September 2014. There are some interesting cases here, along with the standard gamut of U4 violations, OBAs (outside business activity), selling away and others.

October 02, 2014

According to a September 25, 2014, Information Notice, FINRA announced that individuals who had been registered with a broker-dealer or investment adviser may now access their individual snapshot report online. According to the notice, "A Snapshot contains information that has been reported about an individual on Forms U4, U5 and U6, including residential and employment history, professional designations and disclosure events, as well as other information such as examination and continuing education history. While much of the information provided in a Snapshot also is available through FINRA BrokerCheck® and the SEC’s Investment Adviser Public Disclosure database, a Snapshot contains some additional information that is not available through these databases."

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We help brokers and advisers across the country with their federal securities regulatory matters. To discuss your situation, contact Joel Beck at The Beck Law Firm. (678) 344-5342 or send an email to info @ thebeckfirm.com (Don't send any confidential information until we request it, and understand that the firm does not represent you until a written engagement agreement is signed).